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At Gm, Two Heads May Be Worse Than One

August 13, 1995

News: Analysis & Commentary: AUTOS

AT GM, TWO HEADS MAY BE WORSE THAN ONE

The questions just kept coming at Ronald L. Zarrella. General Motors' Corp. new marketing vice-president was live on a GM employee telecast on July 31, and anxious troops across the U.S. were grilling him about their company's latest reorganization. But before he could get to all the questions, Zarrella ran out of satellite time and blinked off the screen. "Every time you get one answer, three more questions pop up," says one GM midlevel insider.

Welcome to GM Reorganization 1995. This year's model--to be unveiled on Aug. 10--attempts to yoke GM's contentious car design, engineering, and manufacturing fiefdoms more closely to its powerful marketing kingdoms. The goal: to speed development of new models by 25%, to 36 months, slash engineering costs by 30%, and restore pizzazz to GM's bland brands. "We've got to do it all," says GM Chief Executive John F. Smith, Jr.

But in hallmark fashion, GM's efforts to simplify itself have created an ever more complex structure, one still riven by warring factions. GM's unwieldy new two-headed system is raising eyebrows. "This is bound to cause turf battles," says a former Chrysler Corp. honcho. "GM still seems to want an adversarial relationship between the guys who build 'em and the guys who sell 'em." Even GM admits it must shed its tradition of infighting. "Behaviors are going to have to change if this is going to work," says Zarrella.

Failure means GM will fall even further behind in the critical race to rush competitive new cars to market. Toyota Motor Corp. can bring out a new car in 30 months, vs. an average of 48 months for GM. Next year, GM finally will roll out a desperately needed new minivan, after six years in development. "GM has too many cooks making the stew," says J.P. Morgan & Co. analyst David Bradley. "It's a disaster." That's one reason GM's marketshare slipped another 1.3 points in the past year, to 32%.

GM's new recipe is a convoluted concoction of two parts Toyota blended with a dash of Procter & Gamble Co. It will appoint Toyota-style product czars, known in GM-speak as "vehicle line executives," or VLEs. These managers will rope together quarrelsome designers, engineers, manufacturing and marketing executives, and others to design and build cars and trucks--a system already adopted by the rest of Detroit. The carmaker also is setting up P&G-style brand managers who decide the pricing and market positioning of new models. GM will hold both halves of each powerful duo accountable separately for earning a profit on their vehicle.

Confused? You're not alone. Skepticism reigns inside and outside GM. "Why did they have to make it so complex?" wonders Lehman Brothers Inc. analyst Joseph Phillippi. "Why not just have one chief engineer with profit and loss responsibility, like Toyota?"

GM contends that its very size requires some complexity. A GM vehicle line may be sold under three or more nameplates, so no one manager can handle the task, says Arvin F. Mueller, GM's vice-president of vehicle development. The changes mark big progress, he argues: "We used to have hundreds of people making these decisions, and now we've got it down to two."

PUSHING THE LIMIT. Mueller won't say who gets the 16 to 18 coveted VLE jobs for a month or more, but they're expected to be young hotshot engineers or designers who have no ties to the old school. They're to stay in their jobs for up to 10 years--through two cycles of their vehicle--a far longer job tenure than GMers usually have.

Meanwhile, Zarrella says he'll begin interviewing candidates, including outsiders from packaged-goods companies, in September for about 36 brand-managers slots. As the new managers take control of individual models, the powerful heads of GM's car and truck divisions will lose much of their clout.

Still, this hardly qualifies as a revolution. GM top executives call the latest plan an evolution of a product-development reorganization begun 11 years ago--and tinkered with in 1988, 1992, 1993, and 1994. "They're moving in the right direction," says Jeffrey Liker, a University of Michigan expert on Toyota. "But they're still acting like GM." That's the problem: GM just grinds along in low gear. Given the rapid transformation it needs, it should be punching the accelerator.By Keith Naughton and Kathleen Kerwin in Warren, Mich.